Visit vanguard.com or contact your broker to obtain a Vanguard ETF or fund prospectus which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss in a declining market.

Stocks of companies in emerging markets are generally more risky than stocks of companies in developed countries.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

All investing is subject to risk, including possible loss of principal.

The nation’s near-term focus is on the “fiscal cliff,” the slate of expiring tax cuts and automatic spending reductions that will be triggered at the end of 2012 if leaders in Washington fail to reach a budget agreement. The debate is dominating the news, complete with dire warnings and grim pronouncements.

It’s downright scary. But I think it’s an incredible opportunity.

Why? Because our long-term fiscal imbalance is an issue we should have resolved years ago. Unfortunately, we’ve postponed for too long the difficult choices that we need to make. Now, we’re up against a deadline with real consequences, and we have to do something. It’s time to get serious.

I would remind folks that this debate is not just about the near-term fiscal cliff. It’s about enacting a long-term plan to address the federal deficit.

Our national debt is the number-one threat facing investors today. It has the potential to dwarf the current economic concerns about Europe or China. We need a long-term plan to bring spending and revenues into balance. Investors, whose decisions ultimately make up “the financial markets” do not like uncertainty. In fact, you could argue that the markets absorb bad news better than they deal with uncertainty.

What does this issue mean for the typical investor? It means a great deal. Take for example someone who is nearing retirement. Every time we’ve come close—but failed—to find a solution (recall the debt ceiling debates and supercommittee negotiations of 2011), that person’s retirement account was jolted by spats of market volatility. But the longer term picture is just as important: The investor’s children and grandchildren continued to accrue the burdens of today’s uncontrolled national debt and the huge, unfunded promises embedded in numerous government programs.

What’s in the best interest of investors?

Vanguard manages $2 trillion for people who are investing for their futures. From our perspective, we believe that lawmakers should do the following:

1. Avoid the fiscal cliff with an agreement that makes a down payment on the problem and pair it with a specific and binding timetable and framework for addressing comprehensive deficit reduction in 2013. We’ve kicked the can down the road long enough!

2. Enact comprehensive deficit reduction legislation to bring government revenues and spending into balance over a span of years.

Our elected officials must take advantage of the fiscal cliff deadline. We have an important opportunity to bring clarity to our nation’s fiscal situation. We believe that while short-term steps are important, only a long-term plan will help restore stability to our markets and economy.

Bill McNabb

Bill McNabb is chairman and chief executive officer of Vanguard. Bill joined Vanguard in 1986, became chief executive officer in 2008, and then chairman of the board of directors and the board of trustees in 2009.
Previously, he led each of Vanguard’s client-facing business divisions, most recently serving as managing director of Vanguard’s institutional and international businesses. Bill is active in the investment management industry, and serves on the executive committee of the Investment Company Institute’s Board of Governors. He also serves on the boards of the Zoological Society of Philadelphia and the United Way of Greater Philadelphia and Southern New Jersey.
Bill earned an A.B. at Dartmouth College and an M.B.A. at The Wharton School of the University of Pennsylvania.

Comments

Anonymous | December 24, 2012 12:07 pm

Fiscal Cliff? It’s more like a step off the front porch compared to the trillion dollar a year deficit – 16 trillion dollar debt – 90 trillion dollar entitlement obligation “black hole” on the other side of that step. Do we really think we can tip toe around that without any pain? Why not take that first step toward a real solution, the one that is coming on January 1st? The Democrats want higher taxes and the Republicans want cuts in spending. That’s exactly what we will get if Obama and Boehner do nothing. The problem seems to be fear of another recession. It’s not our first recession. We can work through that. Stepping around the problem again while continuing to print money will lead to a loss in confidence in the dollar as the world’s reserve currency and in the solvency of the United States (don’t tell anyone that we are already insolvent). The subsequent crash in the value of the dollar, hyperinflation, and world-wide depression is something far worse and more unmanageable than another recession. Pick one.

Anonymous | December 23, 2012 7:02 pm

Anonymous | December 23, 2012 9:56 am

I am very disturbed by the tone of this article. First of all, we do have a plan in place that would call for a balanced mix of tax increases and spending cuts. This plan will be put in place automatically in a number of days unless we decide on a better plan. The only reason we are facing a “cliff” is because neither side wants this automatic plan to occur but cannot agree on what should replace it. So all talk of a cliff is merely propaganda and should be eliminated entirely.

Second, we do not have a long term government spending crisis. We have a long-term health care spending crisis. Moving the same amount of health care spending from the government side of the spending ledger to the private side of the spending ledger does nothing whatsoever to help this problem. Instead it exacerbates it, since studies show that Medicare is a lower cost program than private programs.

Aside from heath care spending, social security is in balance for the next 30 years–that provides plenty of time to fix things. Discretionary spending is at an all-time low since the 1950s as a percentage of GDP.

In short this article is deeply disappointing. If Vanguard cannot produce a factually accurate account it should refrain from commenting.

Anonymous | December 23, 2012 8:36 am

It is time for Congress and the President to stop the partisan politics, it makes me sick. Do what is right for the American people and the future of America. Constantly taking issues right up to deadlines for action is ridiculous. I am tired of inactivity crashing the stock market. Do something!

Anonymous | December 22, 2012 1:45 pm

The major point that drew me to Vanguard in the first place was its focus on long term investing and its encouragement of individual investors to make rational decisions about their financial future. How much of our $2 trillion dollars depends on the state of the US economy? Most of it.

It is in our (republicans and democrats alike) best interest to see 1) predictable domestic growth, 2) fiscal responsibility on the part of government, 3) equitable increase in revenue which does not stunt economic growth, and 4) shared responsibility in addressing these issues. Democracy means that the citizenry takes control of its destiny. It should be obvious that with elections every two years, our House of Representatives is not structured to nor can be counted on to address Vanguard’s investors’ long term horizons. We have to do the job ourselves.

Right now, every Vanguard investor should be on the phone to his Congressman and Senator telling them what he wants and needs. Every investor should define for himself who can afford higher taxes. And every investor has the responsibility of defining and communicating to Congress the programs requiring fiscal constraint lest they stunt long-term growth.

It’s our money and our future. Tell Congress what we want and tell them to get along with it.

Anonymous | December 20, 2012 8:21 pm

I think Vanguard should stay out of politics. We all have our thoughts, some backed by data, but ultimately Vanguard, while a very big holding company with respect to assets, exists to serve investors not propagate political philosophy. They should respond to reality, but serving their customers (and co-owners as a mutual company), the best products in the business. Let the people decide who to vote for and the future direction of the country. Yes we have uneducated people voting. Yes many policies hurt business. But none of that means lobbiests should have an outsized voice. If Vanguard becomes a political machine, it’s share holders (through funds) will get burried. Simple investing principles, less push to grow (your too big already) and neutral politics please.

Anonymous | December 21, 2012 9:44 am

I agree. If Bill wants to talk about legislation, why hasn’t he been honest about his lobbying against regulation reform for Money Market Funds? They still represent a huge risk to savers and the financial system.

Anonymous | December 20, 2012 6:31 pm

Fiscal Cliff? It’s more like a step off the front porch compared to the trillion dollar a year deficit – 16 trillion dollar debt – 90 trillion dollar entitlement obligation “black hole” on the other side of that step. Do we really think we can tip toe around that without any pain? Why not take that first step toward a real solution coming on January 1st? The Democrats want higher taxes and the Republicans want cuts in spending. That’s exactly what we will get if Obama and Boehner do nothing. The problem seems to be fear of another recession. It’s not our first recession. We can work through that. Stepping around the problem again while continuing to print money will lead to a loss in confidence in the dollar as the world’s reserve currency and in the solvency of the United States (don’t tell anyone that we are already insolvent). The subsequent crash in the value of the dollar, hyperinflation, and world-wide depression is something far worse and more unmanageable than another recession. Pick one.

Anonymous | December 20, 2012 4:02 pm

My opinion on the national debt….we are not going to significantly reduce our national debt by tweaking revenue or expense, cliff or no cliff. There is an easier and politically acceptable way. Just keep borrowing money and let inflation do the job. just a mere 3% per year inflation for example cuts the real value of our $16 trillion dollar debt in half in just 14 years.

But be careful, too much inflation could cause a collapse in the value of the Dollar. It could go back to it’s actual real value as a green piece of paper (affectionately known as a “Federal Reserve Note”). If that happens we would not be able to support our for war expenditures, a political no-no.

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At Vanguard, we’ve always believed in candid, direct communication with investors. In fact, it’s one of our core principles. In 2009, we created the Vanguard Blog so that we could talk about what’s happening in our industry and in the economy—and hear what’s on the minds of investors like you. More

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Visit vanguard.com or contact your broker to obtain a Vanguard ETF or fund prospectus which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss in a declining market.

Stocks of companies in emerging markets are generally more risky than stocks of companies in developed countries.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

All investing is subject to risk, including possible loss of principal.